Debt Bubble

July 31, 2013


Ireland (Photo credit: Trent Strohm)

It’s a source of irony in the absence of a deep trawl banking inquiry hopefully led by some international figures with legal experience of such matters, free from political control, that many of the culpable figures in the political, banking and Dept of Finance echelons of power not excluding  economists in academia, who fed the flames of the Celtic Tiger, remain in situ.

Olafur Grimmson of Iceland with his background in economics and politics during Iceland’s financial meltdown would be a worthy person to lead or suggest leadership of our banking inquiry that could work in the form of a truth and reconciliation commission. Roger Boyes is another such person,

But I think it is our obligation in Iceland to give an open and honest description of our own experience, of the lessons we have leaned, and other people can draw their own conclusions. I have already mentioned that if you want to deal with this economic crisis, you must treat it not only as an economic challenge but also as a fundamental social, political, and even a judicial challenge.

On the judicial side, we appointed a special commission headed by a Supreme Court judge that issued a report in 9 volumes, we appointed the office of special prosecutors, we have enacted various legislation and laws that relate to the judicial and legal system.

A second lesson, interestingly enough, is in terms of our economic policies. We have, to some extent, gone against the prevailing economic orthodoxies of the American, European, and IMF model in the last 30 years. This has even been recognized by the IMF leadership.

As you know, the IMF program finished last year, and we organized a celebratory conference in October, where we said goodbye to the IMF program, and it was attended by Paul Krugman, and other prominent economists, as well as some of the leading officials of the IMF. And it was very interesting to hear them acknowledge that the IMF had probably learned more from this experience with Iceland than Iceland had learned from the IMF. It has made the IMF reconsider some of their orthodox stances on what should be the proper economic and financial response to a crisis on this nature.

Thirdly, we have, in our economic measures, tried to protect the lowest income sectors, we have to try and protect some of the elementary social and health services, and done more of that nature than has traditionally been done in dealing with such a crisis.

As everybody knows now, we did not pump public money into the failed banks. We treated them like private companies that went bankrupt, and we let them fail. Some people say we did it because we didn’t have any other option, there is clearly something in that argument, but it does not change the fact that it turned out to be a wise move or whatever reason. Whereas in many other countries, the prevailing orthodoxy is you pump public money into banks and you make taxpayers responsible for the banks in the long run, and somehow treat the banks as if they are holier institutions in the economy than manufacturing companies, commercial companies, IT companies, or whatever. And I have never really understood the argument: why a private bank or financial fund is somehow holier for the well being and future of the economy than the industrial sector, the IT sector, the creative sector, or the manufacturing sector.”

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It would not be untrue to perceive there is a conspiracy behind efforts to delay, postpone a banking inquiry for as long as possible. It would also not be untrue to conclude the erstwhile mandate by the people put in place to clean up our banks and defend the interests of taxpayers, failed. Puppets  who originated the false Celtic Tiger now make a mess of the Celtic Debt bubble. Economists of that era, bankers, DOF officials are still largely in place in their former positions of power.

Mess management of the economy in Celtic tiger years is being replicated with Ireland’s management of its debt bubble. This explains the unconscionable and odious bailout terms swallowed by Ireland. This explains the extinguishing of our domestic economy under bailout. This explains delay in a banking union that might pay up on Ireland’s legacy debts through some ESM instrument or another.

This explains why the above elite fan the flames of austerity in Ireland.

First and foremost psychological equipment to be part of this elite is to possess a Lemming consciousness. This means that you are good at following orders. So much so that the ability to think for oneself will at all times be set aside and replaced with the facility to execute to the letter the thoughts and wishes of those above you in the hierarchy.

This is excellent when a model of success is being followed by all concerned, but disastrous under conditions when the model is flawed, when part of the flock runs towards the cliff. Independence of mind and smart thinking is frowned upon as the power of the status quo views such thinking as a threat. The escalator leading to the top means for advancement one puts up or shuts up.

What emerges at the top will generally look further up the ladder for the Holy Orders to lead those below. In Ireland such leadership has been provided by the troika who’ve fed orders to Ireland’s Dept of Finance forcing bailout on political leaders such as Brian Lenihan. Our current political leaders take their orders from the troika in the same way.

We could look to independent minded economists for some guidance such as Grimmson above but largely our politicians and economists come from the Montessori school of politics and economics. Some economists have direct cv experience of training with the World Bank and would defer to authorities as represented by the troika without question.

Politicians in turn would close this circle of persuasion by elevating such economists to positions of preferment to the extent that politics in Ireland becomes no less than a Vichy rubber stamping of decisions taken elsewhere by the Fed, the IMF, the ECB and the Bundestag led by Angela Merkel.

So we should be cautious of any risky advice given us by Greek sirens in politics or academia who urge us to pony express austerity through useless deals on our banking debt that have turned Ireland into a Debt Bubble. Put aside ‘end of programme’, end of troika nonsense, return to the markets falsehoods for our economy. Ireland’s debt to gdp ratio is due to reach a massive 123% this year:

Without the umbrella of bailout and control of our sovereign finances by ECB and troika as one Europe’s emerging Debt Bubble’s Ireland’s return to the markets is about as true as a youngster going for a swim in the ocean compared to a toddler going for a paddle in a paddling pool with an inch of water.

NUIG economists Prof John McHale and Dr Alan Ahearne yesterday afternoon impressed on the Oireachtas Committee on European Union Affairs the need for bolder monetary and fiscal policy actions at EU level to secure economic recovery.

Prof John McHale is Head of Economics at the NUIG and Chair of the Irish Fiscal Advisory Council while Alan Ahearne is a Member of the Commission of the Central Bank of Ireland and served as former Special Advisor to the former Minister for Finance, the late Brian Lenihan from 2009 to 2011.

24 April 2013 “


It amazes me that both McHale and Ahearne both closely associated with our bailout policy of secession of our economic sovereignty to the troika, both having delivered zero in their contribution to a debt write down for Ireland, both strong supporters of appeasement of the troika, both so near to the crippling mistakes of FF under Brian Lenihan, both in favour of bondholder appeasement at the expense of taxpayers, both supporters of Trichet’s policy against private sector involvement in bailouts, a policy forced upon us by the troika and both having so little to show for such a policy of appeasement, that both have not been unceremoniously replaced with those likely to achieve better results for Ireland in its negotiations with our creditors, the troika.

True to form whether in a personal capacity or in his capacity as Chair of the Irish Fiscal Advisory Council, I suspect in the former capacity,


McHale reasons we should pony up the €3.1bn fiscal adjustment demanded by the troika in our next budget. It would ‘be risky’ to do otherwise.

“He said: “The money adjustment targets are directly relevant in that much of Ireland’s credibility in terms of showing it has the political capacity to make the necessary fiscal adjustments really revolve around meeting those targets.””

Nothing there about Ireland’s credibility in meeting its targets in terms of the political expectation/mandate given to Labour/FG to achieve debt share write down for Ireland.

Nothing there by way of a banking union commitment to  support Ireland’s classical banking collapse unsupported by bond purchases from Europe, unfettered by regulation, with no repurchase agreements of Irish debt through the much heralded ESM, or by any other means.

Except perhaps full reimbursement of promissory note support now laundered into a bond foisted on Irish taxpayers; full reimbursement of odious debt foisted on Irish taxpayers by the troika. Clearly taxpayers will be led into the same jaws of debt both Ahearne and McHale have led Irish taxpayers into in the past.

Next UP…new European Debt bubble economies..



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